Page 71 - GSTL_16th July 2020_Vol. 38_Part 3

2020 ] AGRAWAL COLOUR ADVANCE PHOTO SYSTEM v. COMMISSIONER OF C. EX. 309
“64. Whether contract involved a dominant intention to transfer the
property in goods, in our view, is not at all material. It is not neces-
sary to ascertain what is the dominant intention of the contract. Even
if the dominant intention of the contract is not to transfer the property
in goods and rather it is the rendering of service or the ultimate
transaction is transfer of immovable property, then also it is open to
the States to levy sales tax on the materials used in such contract if it
otherwise has elements of works contract. The view taken by a two-
Judge Bench of this Court in Rainbow Colour Lab (supra) that the divi-
sion of the contract after Forty-sixth Amendment can be made only if
the works contract involved a dominant intention to transfer the
property in goods and not in contracts where the transfer of property
takes place as an incident of contract of service is no longer good law,
Rainbow Colour Lab (supra) has been expressly overruled by a three-
Judge Bench in Associated Cement.
65. Although, in Bharat Sanchar, the Court was concerned with sub-
clause (d) of Clause (29A) of Article 366 but while dealing with the
question as to whether the nature of transaction by which mobile
phone connections are enjoyed is a sale or service or both, the three-
Judge Bench did consider the scope of definition in Clause (29A) of
Article 366. With reference to sub-clause (b) it said : “Sub-clause (b)
covers cases relating to works contract. This was the particular fact
situation which the Court was faced with in Gannon Dunkerley-I (State
of Madras v. Gannon Dunkerley & Co., AIR 1958 SC 560) and which the
Court had held was not a sale. The effect in law of a transfer of prop-
erty in goods involved in the execution of the works contract was by
this amendment deemed to be a sale. To that extent the decision in
Gannon Dunkerley-I was directly overcome”. It then went on to say
that all the sub-clauses of Article 366(29A) serve to bring transactions
where essential ingredients of a ‘sale’ as defined in the Sale of Goods
Act, 1930 are absent, within the ambit of purchase or sale for the pur-
poses of levy of sales tax.
66. It then clarified that Gannon Dunkerley-I survived the Forty-sixth
Constitutional Amendment in two respects. First, with regard to the
definition of “sale” for the purposes of the Constitution in general
and for the purposes of Entry 54 of List II in particular except to the
extent that the clauses in Article 366(29A) operate and second, the
dominant nature test would be confined to a composite transaction
not covered by Article 366(29A). In other words, in Bharat Sanchar,
this Court reiterated what was stated by this Court in Associated Ce-
ment that dominant nature test has no application to a composite
transaction covered by the clauses of Article 366(29A). Leaving no
ambiguity, it said that after the Forty-sixth Amendment, the sale ele-
ment of those contracts which are covered by six sub-clauses of
Clause (29A) of Article 366 are separable and may be subjected to
sales tax by the States under Entry 54 of List II and there is no ques-
tion of the dominant nature test applying.
67. In view of the statement of law in Associated Cement and Bharat
Sanchar, the argument advanced on behalf of the Appellants that
dominant nature test must be applied to find out the true nature of
transaction as to whether there is a contract for sale of goods or the
contract of service in a composite transaction covered by the clauses
of Article 366(29A) has no merit and the same is rejected.
68. In Gannon Dunkerley-II (Gannon Dunkerley and Co. and others v.
State of Rajasthan and others (1993) 1 SCC 364), this Court, inter alia, es-
GST LAW TIMES  16th July 2020  71